International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Sunday, June 11, 2017

FATCA FFI Registration System updated for FFIs to renew their agreement with the IRS

The FATCA FFI Registration system has been updated to include the ability for FFIs to renew their agreement with the IRS. From the home page link of “Renew FFI Agreement,” the FI will determine whether it must renew its FFI agreement. A table of guidelines is provided to assist in this determination. Once the determination is made, the system enables an FI to review and edit their registration form. The FI will need to verify and update their registration information and submit to renew their FFI agreement.

Those who are required to renew their FFI agreement and do not by July 31, 2017, will be treated as having terminated their FFI agreement as of January 1, 2017, and may be removed from the FFI List.

All FIs should login to the system for this determination.  For login assistance, review the FATCA FFI Registration system FAQ's.

The table below provides a general overview of the types of entities that are required to renew their FFI agreement.

Renewal of FFI Agreement

Financial Institution’s FATCA Classification in its Country/ Jurisdiction of Tax Residence

Type of Entity

FFI Agreement Renewal Required?

Participating Financial Institution not covered by an IGA; or a Reporting Financial Institution under a Model 2 IGA

Participating FFI not covered by an IGA


Reporting Model 2 FFI


Registered Deemed-Compliant Financial Institution (including a Reporting Financial Institution under a Model 1 IGA)

Reporting Model 1 FFI operating branches outside of Model 1 jurisdictions

Yes, on behalf of branches operating outside of Model 1 jurisdictions (other than related branches)

Reporting Model 1 FFI that is not operating branches outside of Model 1 jurisdictions;


Registered deemed-compliant FFI (regardless of location)


None of the above

Sponsoring entity


Direct reporting NFFE


Trustee of Trustee-Documented Trust


The system update includes Renewal of FFI Agreement fields and information on account home pages and the lead's view of member pages. These fields include:

  • FI Renewal of Agreement Due Date
  • Renewal of Agreement Submitted Date
  • Renewal Status 

The system will notify all approved financial institutions of the renewal open period and due date to renew the FFI agreement. The due date for all renewals is July 31, 2017.

The system instructions and online help are updated for the Renewal of FFI Agreement. The FATCA Registration User Guide is also updated to include steps for FIs to renew their FFI agreement.

Along with system fixes, the update within the registration application includes the removal of the classification of limited for FIs and FI branches.  This classification option will no longer be available for new FI applicants or for renewing FIs.

Two other changes in this release are the inclusion of a warning banner and the attempts to unsuccessfully login is now reduced to three.

June 11, 2017 in Tax Compliance | Permalink | Comments (0)

Monday, June 5, 2017

IRS Releases Statistics of Income (SOI) Bulletin - Spring 2017

The Internal Revenue Service announced that the Spring 2017 Statistics of Income Bulletin is now available on The Statistics of Income (SOI) Irs_logoDivision produces the online Bulletin quarterly, providing the most recent data available from various tax and information returns filed by U.S. taxpayers. This issue includes articles on the following topics:

• Individual Income Tax Returns, Preliminary Data, Tax Year 2015: For tax year 2015, taxpayers filed almost 151 million U.S. individual income tax returns, slightly more than were filed for the prior tax year. In tax year 2015, adjusted gross income rose 5 percent compared to the prior year, representing increases in salaries and wages, partnership income and distributions from retirement plans, among other income items.

• Individual Income Tax Shares, Tax Year 2014 provides details from income tax returns filed for tax year 2014. The average adjusted gross income (AGI) reported on these returns was $69,565, up 6.5 percent from the previous year. Total AGI increased 7.5 percent to $9.71 trillion.

June 5, 2017 in Tax Compliance | Permalink | Comments (0)

Tuesday, May 30, 2017

Court Finds Wells Fargo Liable for Penalties for Engaging in Abusive Tax Shelter Scheme

Wells Fargo Engaged in an Abusive Tax Shelter Marketed by Barclays Bank to Generate $350 Million in Foreign Tax Credits   Download Wells_fargo_opinion

On Wednesday, a federal court in Minneapolis, Minnesota ruled that Wells Fargo is liable for a 20 percent negligence penalty Irs_logoin connection with $350 million of foreign tax credits that it claimed based on its participation in an abusive tax shelter known as Structured Trust Advantaged Repackaged Securities (STARS). This follows a Minnesota jury’s verdict on Nov. 17, 2016, that ruled Wells Fargo was not entitled to those foreign tax credits because the transaction lacked both economic substance and a non-tax business purpose.

After a three-week trial, the jury in this case was asked to determine whether Wells Fargo’s STARS transaction had economic substance, and the jury made some key factual findings. Wells Fargo contended that STARS was a single, integrated transaction that resulted in low-cost funding, but the jury found that in reality, the transaction consisted of two economically distinct and independent transactions: a loan and a trust. The jury found that the trust structure had no reasonable potential for pretax profit and that Wells Fargo entered into the trust structure solely for tax reasons. The jury also found that Wells Fargo entered into the loan solely for tax-related reasons.

In a prior decision in this case, the court noted that Barclays Bank PLC marketed the STARS transaction to American banks, which was designed to exploit differences between the tax laws in the United States and in the United Kingdom. Three other courts have rejected STARS tax shelters that Bank of New York, BB&T Bank and Santander Bank purchased. Santander Holdings USA, Inc. v. United States, 844 F.3d 15 (1st Cir. 2016), pet. for cert. filed, March 20, 2017 (No. 16‐1130); Bank of N.Y. Mellon Corp. v. Comm’r, 801 F.3d 104 (2d Cir. 2015), cert. denied, 136 S. Ct. 1377 (2016); Salem Fin., Inc. v. United States, 786 F.3d 932 (Fed. Cir. 2015), cert. denied, 136 S. Ct. 1366 (2016).

“The jury verdict is a resounding message to companies trying to exploit an abusive transaction that no matter how sophisticated the scheme, these sham tax shelters will not stand,” said Acting Assistant Attorney General David A. Hubbert of the Justice Department’s Tax Division. “The Court’s opinion is equally clear that taxpayers who engage in such transactions can be subject to significant penalties.”

May 30, 2017 in Tax Compliance | Permalink | Comments (0)

Friday, May 19, 2017

Texas Tax Professors Research Workshop at Houston Law Today

Presentation #1: 9:00 – 9:20 Presenter: Bryan Camp, “Application of Equitable Principles to Jurisdictional Time Periods”

9:00 – 9:40 Commenter: Terri Helge Treasury-Dept.-Seal-of-the-IRS
9:40 – 10:00 OPEN COMMENT

Presentation #2: 10:10 – 10:30 Presenter: Cal Johnson, Beckemeyer and the Tax Benefit Rule
10:30 – 10:50 Commenter: Johnny Buckles
10:50 – 11:10 OPEN COMMENT

Open Forum: Round Table Discussion on Business Tax Reform

Presentation #3: 12:30 – 12:50 Presenter: Susan Morse, “The Dark Side of Safe Harbors?”
12:50 – 1:10 Commenter: Bruce McGovern
1:10 – 1:30 OPEN COMMENT

Presentation #4: 1:30 – 1:50 Presenter: Bill Byrnes, “How Much Does It Cost to Roast a Cup of Starbucks?” Download 5-19-2017
1:50 – 2:10 Commenter: Bill Streng
2:10 – 2:30 OPEN COMMENT

*Open Forum 2:20 – 3:20 Roundtable Introduction of Research Topics for Non-Presenters (if time permits)

May 19, 2017 in Academia, Tax Compliance | Permalink | Comments (0)

Friday, May 12, 2017

Controlled Foreign Corporations, Tax Year 2012

Two new tables presenting data from Form 5471, Controlled Foreign Corporations, and Form 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities, Irs_logoare now available on SOI’s Tax Stats Webpage. The tables present data from the estimated population of returns filed for Tax Year 2012. One table presents number, assets, and earnings for controlled foreign corporations and their foreign disregarded entities classified by selected country of incorporation. The other table displays number, assets, and earnings for controlled foreign corporations and their foreign disregarded entities classified by selected NAICS industrial sector.

SOI Tax Stats - Controlled Foreign Corporations

May 12, 2017 in Tax Compliance | Permalink | Comments (0)

Friday, May 5, 2017

The IRS Scandals Are Coming Home To Roost. Congress Attempts To Reign In Perceived IRS Abuses in Yesterday's Omnibus Appropriation.

The Appropriations Committee reported that the Omnibus Appropriation for the Internal Revenue Service (IRS) provides $11.2 billion – freezing the agency at the fiscal year 2016 Irs_logoenacted level and $1 billion below the previous Administration’s budget request. This holds the agency’s budget to below the 2008 level, but provides sufficient resources to perform its core duties.

For example, the bill maintains the current level – $2.1 billion – for Taxpayer Services of which an additional $290 million is provided to improve customer service – such as phone call and correspondence response times – fraud prevention, and cybersecurity.

The GOP spun the IRS public spanking as a huge win in its column.  The Chair stated that the IRS has been plagued in recent years by the inappropriate actions of its employees and political leadership, resulting in the waste of taxpayer dollars and in unjust treatment and targeting of certain ideological groups. To address concerns related to these transgressions, the bill includes:

  • A prohibition on a proposed regulation related to political activities and the taxexempt status of 501(c)(4) organizations wherein a proposed regulation could jeopardize the tax-exempt status of many nonprofit organizations and inhibit citizens from exercising their right to freedom of speech;
  • A prohibition on funds for bonuses or to rehire former employees unless employee conduct and tax compliance is given consideration;
  • A prohibition on funds for the IRS to target groups for regulatory scrutiny based on their ideological beliefs;
  • A prohibition on funds for the IRS to target individuals for exercising their First Amendment rights;
  • A prohibition on funds for the production of inappropriate videos and conferences;
  • A prohibition on funds for the IRS to illegally disclose confidential of returns and return information;
  • A prohibition on funds for the White House to order the IRS to determine the taxexempt status of an organization;
  • A requirement for extensive reporting on IRS spending; and
  • A requirement for IRS agent education and training to become courteous public servants.

The Internal Revenue Service Appropriation is below.

taxpayer services

For necessary expenses of the Internal Revenue Service to provide taxpayer services, including pre-filing assistance and education, filing and account services, taxpayer advocacy services, and other services as authorized by 5 U.S.C. 3109, at such rates as may be determined by the Commissioner, $2,156,554,000, of which not less than $8,890,000 shall be for the Tax Counseling for the Elderly Program, of which not less than $12,000,000 shall be available for low-income taxpayer clinic grants, and of which not less than $15,000,000, to remain available until September 30, 2018, shall be available for a Community Volunteer Income Tax Assistance matching grants program for tax return preparation assistance, of which not less than $206,000,000 shall be available for operating expenses of the Taxpayer Advocate Service: Provided, That of the amounts made available for the Taxpayer Advocate Service, not less than $5,000,000 shall be for identity theft casework.


For necessary expenses for tax enforcement activities of the Internal Revenue Service to determine and collect owed taxes, to provide legal and litigation support, to conduct criminal investigations, to enforce criminal statutes related to violations of internal revenue laws and other financial crimes, to purchase and hire passenger motor vehicles (31 U.S.C. 1343(b)), and to provide other services as authorized by 5 U.S.C. 3109, at such rates as may be determined by the Commissioner, $4,860,000,000, of which not to exceed $50,000,000 shall remain available until September 30, 2018, and of which not less than $60,257,000 shall be for the Interagency Crime and Drug Enforcement program.

operations support

For necessary expenses of the Internal Revenue Service to support taxpayer services and enforcement programs, including rent payments; facilities services; printing; postage; physical security; headquarters and other IRS-wide administration activities; research and statistics of income; telecommunications; information technology development, enhancement, operations, maintenance, and security; the hire of passenger motor vehicles (31 U.S.C. 1343(b)); the operations of the Internal Revenue Service Oversight Board; and other services as authorized by 5 U.S.C. 3109, at such rates as may be determined by the Commissioner; $3,638,446,000, of which not to exceed $50,000,000 shall remain available until September 30, 2018; of which not to exceed $10,000,000 shall remain available until expended for acquisition of equipment and construction, repair and renovation of facilities; of which not to exceed $1,000,000 shall remain available until September 30, 2019, for research; of which not to exceed $20,000 shall be for official reception and representation expenses: Provided, That not later than 30 days after the end of each quarter, the Internal Revenue Service shall submit a report to the Committees on Appropriations of the House of Representatives and the Senate and the Comptroller General of the United States detailing the cost and schedule performance for its major information technology investments, including the purpose and life-cycle stages of the investments; the reasons for any cost and schedule variances; the risks of such investments and strategies the Internal Revenue Service is using to mitigate such risks; and the expected developmental milestones to be achieved and costs to be incurred in the next quarter: Provided further, That the Internal Revenue Service shall include, in its budget justification for fiscal year 2018, a summary of cost and schedule performance information for its major information technology systems.

business systems modernization

For necessary expenses of the Internal Revenue Service's business systems modernization program, $290,000,000, to remain available until September 30, 2019, for the capital asset acquisition of information technology systems, including management and related contractual costs of said acquisitions, including related Internal Revenue Service labor costs, and contractual costs associated with operations authorized by 5 U.S.C. 3109: Provided, That not later than 30 days after the end of each quarter, the Internal Revenue Service shall submit a report to the Committees on Appropriations of the House of Representatives and the Senate and the Comptroller General of the United States detailing the cost and schedule performance for CADE 2 and Modernized e-File information technology investments, including the purposes and life-cycle stages of the investments; the reasons for any cost and schedule variances; the risks of such investments and the strategies the Internal Revenue Service is using to mitigate such risks; and the expected developmental milestones to be achieved and costs to be incurred in the next quarter.

administrative provisions—internal revenue service

(including transfers of funds)

Sec. 101. Not to exceed 5 percent of any appropriation made available in this Act to the Internal Revenue Service may be transferred to any other Internal Revenue Service appropriation upon the advance approval of the Committees on Appropriations.

Sec. 102. The Internal Revenue Service shall maintain an employee training program, which shall include the following topics: taxpayers' rights, dealing courteously with taxpayers, cross-cultural relations, ethics, and the impartial application of tax law.

Sec. 103. The Internal Revenue Service shall institute and enforce policies and procedures that will safeguard the confidentiality of taxpayer information and protect taxpayers against identity theft.

Sec. 104. Funds made available by this or any other Act to the Internal Revenue Service shall be available for improved facilities and increased staffing to provide sufficient and effective 1–800 help line service for taxpayers. The Commissioner shall continue to make improvements to the Internal Revenue Service 1–800 help line service a priority and allocate resources necessary to enhance the response time to taxpayer communications, particularly with regard to victims of tax-related crimes.

Sec. 105. None of the funds made available to the Internal Revenue Service by this Act may be used to make a video unless the Service-Wide Video Editorial Board determines in advance that making the video is appropriate, taking into account the cost, topic, tone, and purpose of the video.

Sec. 106. The Internal Revenue Service shall issue a notice of confirmation of any address change relating to an employer making employment tax payments, and such notice shall be sent to both the employer's former and new address and an officer or employee of the Internal Revenue Service shall give special consideration to an offer-in-compromise from a taxpayer who has been the victim of fraud by a third party payroll tax preparer.

Sec. 107. None of the funds made available under this Act may be used by the Internal Revenue Service to target citizens of the United States for exercising any right guaranteed under the First Amendment to the Constitution of the United States.

Sec. 108. None of the funds made available in this Act may be used by the Internal Revenue Service to target groups for regulatory scrutiny based on their ideological beliefs.

Sec. 109. None of funds made available by this Act to the Internal Revenue Service shall be obligated or expended on conferences that do not adhere to the procedures, verification processes, documentation requirements, and policies issued by the Chief Financial Officer, Human Capital Office, and Agency-Wide Shared Services as a result of the recommendations in the report published on May 31, 2013, by the Treasury Inspector General for Tax Administration entitled “Review of the August 2010 Small Business/Self-Employed Division's Conference in Anaheim, California” (Reference Number 2013–10–037).

Sec. 110. None of the funds made available in this Act to the Internal Revenue Service may be obligated or expended—

(1) to make a payment to any employee under a bonus, award, or recognition program; or


(2) under any hiring or personnel selection process with respect to re-hiring a former employee, unless such program or process takes into account the conduct and Federal tax compliance of such employee or former employee.

Sec. 111. None of the funds made available by this Act may be used in contravention of section 6103 of the Internal Revenue Code of 1986 (relating to confidentiality and disclosure of returns and return information).

Sec. 112. Except to the extent provided in section 6014, 6020, or 6201(d) of the Internal Revenue Code of 1986, no funds in this or any other Act shall be available to the Secretary of the Treasury to provide to any person a proposed final return or statement for use by such person to satisfy a filing or reporting requirement under such Code.

Sec. 113. In addition to the amounts otherwise made available in this Act for the Internal Revenue Service, $290,000,000, to be available until September 30, 2018, shall be transferred by the Commissioner to the “Taxpayer Services”, “Enforcement”, or “Operations Support” accounts of the Internal Revenue Service for an additional amount to be used solely for measurable improvements in the customer service representative level of service rate, to improve the identification and prevention of refund fraud and identity theft, and to enhance cybersecurity to safeguard taxpayer data: Provided, That such funds shall supplement, not supplant any other amounts made available by the Internal Revenue Service for such purpose: Provided further, That such funds shall not be available until the Commissioner submits to the Committees on Appropriations of the House of Representatives and the Senate a spending plan for such funds: Provided further, That such funds shall not be used to support any provision of Public Law 111–148, Public Law 111–152, or any amendment made by either such Public Law.

May 5, 2017 in Tax Compliance | Permalink | Comments (0)

Thursday, May 4, 2017

Citizens for Tax Justice Finds Missing $70 Billion For Trump To Build His Great Southern Wall

Forgive the alarmist headline.  But I just read Citizens for Tax Justice Network (CTJ)*/ITEP defending FATCA because it can raise $40 billion to $70 billion tax revenue a Pot-of-gold-2130425_960_720year for the U.S.  Enough already.  I hope that Citizens for Tax Justice/ITEP are correct and that $70 billion a year remains to be recovered by the IRS from non-reported foreign income.  I work for a public taxpayer-funded academic research institution.  If all the FATCA digging can discover a $70 billion treasure chest that can be spent on higher education support (instead of the Great Southern Wall) then I'm first in line with my hat out for further research funding.  While there may be supportable reasons for Tax Justice / ITIP to argue for requiring foreign institutions to submit the equivalent of the 1099 series to the U.S. Treasury, the collection of an additional $70 billion in tax revenue is likely not one of them.  So let's look at the $70 billion of hidden tax revenue waiting to be discovered....

The article states that "it is estimated that the United States loses $40 to $70 billion in revenue annually due to individual income tax evasion."  Its citation of this data is the September 2016 Congressional Research Service report: FATCA Reporting on U.S. Accounts: Recent Legal Developments.  However, I read the CRS report and it is primarily about the status of IGAs and protection (I argue lack thereof) of taxpayer information shared.  I could not find in the CRS the $40 - $70 billion figure or even a discussion about the calculation of revenue annually lost to individual income tax evasion.  

And that term implies "all" tax evasion (domestic and foreign-based nonreporting) which is quite different from previous claims of $150 billion tax revenue lost from nonreporting of foreign income.  

I think what the CTJ / ITEP commentator meant to citation is a Congressional Research Service (CRS) Memorandum of July 23, 2001 referencing an inquiry made by the House Majority Leader as to the method used by attorney Jack Blum, an IRS contract consultant, to construct the then estimate of $70 billion of illegal tax evasion losses due to tax havens. This figure was contained in his affidavit submitted in support of the government’s request from the federal court for a John Doe summons for records from MasterCard and American Express.  However, according to the CRS Memorandum: “Mr. Blum’s estimate was contained in a declaration filed in connection with a petition the Internal Revenue Service filed with the U.S. District Court for the Southern District. In response to your request, we contacted Mr. Blum and discussed his estimate; he was not able to send us a written discussion of his estimating procedure … We did not discuss these particular aspects of the estimating process in our initial conversation with Mr. Blum and our attempts to contact Mr. Blum on a follow-up basis have not been successful.” (see my 130-page SSRN article for footnotes ad nauseum)

On March 4, 2009 the IRS Commissioner Charles Shulman testified before the Subcommittee that there is no credible estimate of lost tax revenue from offshore tax abuse.  Treasury Departments have often stated large figures of unreported annual taxable income in foreign jurisdictions, and a huge asset base from which that income percolates.  By example, the IRS has stated that underreporting and underpayment of tax liabilities account for more than 90 percent of the $450 billion tax gap dollars. While the IRS has not estimated the size of the international tax gap, the Treasury Inspector General for Tax Administration reported in 2012 that estimates range from $40 billion to $123 billion annually.  

I fancy myself a two-bit political economist of sorts and thus understand the difficulty in measuring an unseeable "black hole" (I recall Dutch Prof. Dr. Brigitte Unger of Utrecht referring to her measuring of the opaqueness of the money laundering industry in this way, but it may have been my crime fighting friend Prof. Dr. Dionysios Demetis of Hull).  However, just like with 'proving' the existence of a black hole, we can research for and analyze data of 'measurable' surrounding circumstances.  In 2000, the U.S. State Department estimated that assets 'secreted' in offshore jurisdictions totaled $4.8 trillion. In 2007, the OECD estimated the total at $5 trillion to $7 trillion.  If banks, like UBS,  had such significant 'secreted' assets in 2007, then I wonder why it is that these same banks required capital bailouts in 2008 from sovereign wealth funds, direct governments intervention, and central banks? Seems to me a disconnect.  Several academics and economists with various motivations have sought to measure the AUM of international financial centers, naming just two examples from many: the IMF and Brook Harrington.  I welcome a research grant and a collaborative team (without a political opinion to express in its findings) to undertake an exhaustive research and analysis.  

The CTJ/ITEP article then points to the egregious UBS  conduct wherein the bank assisted clients in evading U.S. tax on $15 billion of assets (I recall it being $20 billion but I'll go with Citizen's for Tax Justice's figure).  I also recall that after the full investigation of Credit Suisse's international clients that more than half of the clients turned out to be 'tax compliant', or so the bank testified under oath about the findings of a robust audit of its international client base by a respected outside U.S. law firm.  See my commentary of 2014  Of about $10 billion of Credit Suisse AUM initially identified as potentially non-compliant with U.S. tax laws, it turned out that $5 billion were compliant and another $2 billion had lost a U.S. tax during the time in question.  

Still, $4 or 5 billion of non-compliant AUM is $ 4 or $5 billion of AUM.  Not something that should go unnoticed by a reputable bank.  Not excusing Credit Suisse or UBS in any way. The bank and its employee(s) should be held accountable for assisting individuals in committing a crime against the U.S. government.  The other governments of the world may not like the U.S. jurisdictional criminal reach into their business' affairs, but that's the reality they live in for exposing themselves to the U.S. market.  Especially banking institutions that are both subsidized and protected by U.S. taxpayers, or take advantage of the U.S. financial markets (UBS had significant U.S. exposure during the time of its non-compliant behavior). 

Let's say it all of UBS was non-compliant dollars hidden from the IRS though probably some portion was compliant.  5% return on $15 billion is $750 million. Take an average 15% tax rate on portfolio income and that gives is $112.5 million.  UBS, the biggest wealth manager for foreign assets under management, I recall reading in industry reports back when the UBS case broke, had 10% of the market.   Let me cut that figure in half for sake of argument.  So if UBS is representative of only 5% of the market, we are still in the $2 billion range of lost tax revenue - a very far cry from the articles $40 - $70 billion, or previous $150 billion.  More likely, it's a lot less.  (see my previous commentary on Kluwer's Tax Blog)

See Background and Current Status of FATCA (March 1, 2017). LexisNexis® Guide to FATCA & CRS Compliance (5th ed., 2017) . SSRN: 

book coverByrnes’ Lexis Guide to FATCA & CRS Compliance – NEW 2017 edition expanded to two-volume set!

Since the first edition written in Spring of 2012, the industry leading 2,000 page analysis of the FATCA and CRS compliance challenges,  79 chapters by FATCA and CRS contributing experts from over 30 countries.  Besides in-depth, practical analysis, the 2017 edition includes examples, charts, timelines, links to source documents, and compliance analysis pursuant to the IGA and local regulations for many U.S. trading partners and financial centers.   Byrnes’ Lexis Guide to FATCA Compliance, designed from interviews with over 100 financial institutions and professional firms, is a primary reference source for financial institutions and service providers, advisors and government departments.  This treatise also includes in-depth analysis of designing a FATCA internal policy, designing an equivalent form to the W-8, reporting accounts, reporting payments, operational specificity of the mechanisms of information capture, validation for fit for purpose, data management, and exchange by firms and between countries, insights as to the application of FATCA, CRS, and the IGAs within BRIC, SEA and European country chapters.  This fifth edition provides the financial enterprise’s FATCA compliance officer the tools for developing and maintaining a best practices compliance strategy.  No filler of forms and regs – it’s all Texas beef folks!

* In an earlier version this morning I inadvertently swapped TJN for CTJ.  I am separately examining a TJN post of yesterday citing to a Finish government sponsored Global Financial Integrity report measuring illicit flows (see here) based upon matched-trade methods to estimate misinvoicing. Trade misinvoicing is calculated by comparing a country’s reported trade statistics with those of its “advanced economy” trading partners (see p. 46 of the GFI report).

May 4, 2017 in GATCA, Tax Compliance | Permalink | Comments (1)

Friday, April 28, 2017

Toward a Perspective-Dependent Theory of Audit Probability for Tax Compliance Models

The classic deterrence theory model of income tax evasion first articulated in 1972 has met significant criticism because it does not comport with the observed rate of tax compliance. This Jack.manhire article argues that the classic expected utility model and its various progeny, including nonexpected utility models, employ too general a notion of taxpayers’ probability of audit by equating the latter to the frequency with which the government audits tax returns. Given that audit probabilities vary significantly based on whether taxpayers underreport tax on their returns, these models should be revised to reflect the conditional nature of audit probability from the taxpayers’ perspective. If one applies this perspective-dependent definition of audit probability to both expected and nonexpected utility models, the theoretical results will more closely reflect the observed rate of tax compliance.

Manhire, Jack, Toward a Perspective-Dependent Theory of Audit Probability for Tax Compliance Models (April 18, 2014). 33 Virginia Tax Review 629 (2014). Available at SSRN: or

April 28, 2017 in Tax Compliance | Permalink | Comments (0)

Tuesday, April 18, 2017

What Does Voluntary Tax Compliance Mean?: A Government Perspective

One of the IRS’s principal goals is to maximize voluntary compliance. Yet, there is often a great deal of confusion and consternation when taxpayers discover that the IRS refers to the Jack.manhireannual filing and payment ritual as “voluntary;” especially since most taxpayers do not believe they have a choice when it comes to filing and paying their taxes. What does voluntary compliance mean? Does it mean taxpayers can volunteer to file returns and pay taxes, much as one might volunteer to make a charitable donation? Does it mean taxpayers don’t have to comply with the tax laws if they don’t feel like it? How can it be a federal crime to not file or pay taxes if compliance is voluntary? This essay offers a government perspective as to why the IRS uses this sometimes perplexing term. After investigating (and dismissing) a possible literal defense, the essay surveys the IRS’s history to see why voluntary compliance is such a critical part of the U.S. tax system. The essay then recommends changing the term from voluntary to cooperative compliance to retain the government’s meaning while lessening taxpayer confusion.

Manhire, Jack, What Does Voluntary Tax Compliance Mean?: A Government Perspective (2015). 164 University of Pennsylvania Law Review Online 11 (2015); Texas A&M University School of Law Legal Studies Research Paper No. 16-58. Available at SSRN:

April 18, 2017 in Tax Compliance | Permalink | Comments (0)

Friday, April 14, 2017

UK Fines PhD Student for Not Filing Tax Returns Though No Tax Due, Dissertation Changes Not Excuse For Delayed Filing

Dr. Olga Malinovskaya v HMRC [2017] UKFTT 245 (TC).

The appellant Dr. Olga Malinovskaya was born in Russia and is an academic. She has obtained degrees in the USA and France. She was a research student at Lincoln College, Oxford HMRC logofrom 15 January 2011 to 6 June 2016 successfully reading for the degree of Doctor of Philosophy in Medieval and Modern languages, and graduating on 22 July 2016. The appellant has provided evidence in support of the above.

In an attempt to fund her stay in Oxford she formed a film distribution business (Vintage Films Ltd) which was registered in October 2010. The company has never yielded any profit. It is still in existence but the appellant says it has been “dormant for HMRC purposes”.  The appellant worked full time at Gherson, an immigration and human rights law firm from January 2012 to May 2014 and from August 2016 to date. Whilst there she paid tax at source and was never asked to complete SA returns until February 2016.

In January 2016 the appellant was aware that she had received £500 from Oxford University in June 2015 so applied for self-assessment. The end result was that she was also asked to provide SA returns for years 2012-2013, 2013-2014, and 2014-2015.

In respect of reasonable excuse HMRC say that they consider the actions of a taxpayer should be considered from the perspective of a prudent person. Exercising reasonable foresight and due diligence, having proper regard for their responsibilities under the Tax Acts…. The test is to determine what a reasonable taxpayer, in the position of the taxpayer, would have done…….”.   In respect of the penalty being unfair HMRC say for a penalty to be disproportionate it must be “not merely harsh but plainly unfair.” They refer to the decision in International Transport Roth Gmbh v SSHD.  [HMRC] says special circumstances must be “exceptional, abnormal or unusual” (Crabtree v Hinchcliffe) or “something out of the ordinary run of events” (Clarks of Hove Ltd. v Bakers’ Union). HMRC consider that there are no special circumstances which would allow them to reduce the penalty.

Tribunal’s Observations

The Tribunal agrees with HMRC that it is the Appellant’s responsibility to submit SA returns on time.  The returns for the periods 2012-2013, 2013-2014, and  2014-2015 were due to be submitted by 9 May, 2016, 9 May 2016, and 18 May 2016 respectively, but they were all submitted late on 16 October 2016. Penalties totalling £2,250 are therefore due unless the appellant can establish a reasonable excuse for the delay as referred to in Paragraph 23(1) Schedule 55 Finance Act 2009.  A reasonable excuse is normally an unexpected or unusual event that is unforeseeable or beyond the taxpayer’s control, and which prevents them from complying with their obligation to file on time.

The appellant gives details of her appeals to HMRC against the penalties and requesting them to remove the notices to file self-assessment returns. She also gives evidence supporting telephone calls made to HMRC. She maintains there was no income that requires an SA return for the years 2012-2013, 2013-2014, and 2014-2015. She claims to have been wrongly advised that the only way she could cancel the notices to file and the late penalties would be to file SA returns. She says that it is within HMRC powers to withdraw or cancel notices to file.  After filing the returns she was advised there was no tax liability for the years 2012-2013 and 2013-2014 and that she was due a refund of £778.59 in respect of 2014-2015. That refund has been retained by HMRC pending the outcome of this appeal.  In the tribunal’s view HMRC are entitled to satisfy themselves that no tax is due in any tax year. This is what they set out to do by means of asking the appellant to complete SA returns for the periods in question. The appellant appears to take the view that because she is satisfied that no tax is due she does not need to complete a return. The appellant is responsible for meeting the deadlines for filing her tax returns whether or not she considers any tax is due.

The appellant points out that her viva (a defence of a PhD thesis) was scheduled for 18 February 2016. The result of that was that numerous corrections had to be made to her thesis by 6 June 2016. She states that this work consumed all her time and attention during the period.  In respect of reasonable excuse the appellant points out that she was very busy in writing and correcting a thesis for a PhD and all her time was focussed on that. Many people in many and varied walks of life are very busy but they recognise that other responsibilities can impinge on their time. Completing SA returns is one such responsibility. Completing a PhD, whilst an admirable achievement, does not provide the appellant with a reasonable excuse for the late completion of tax returns.

The appellant complains that she was given a short deadline to complete the returns. The notice to file was given in early February 2016 with dates for submission over 3 months later in May 2016. The Tribunal observes that the appellant considers that the returns show no taxable income from the film distribution business and that tax on income from Ghersons was paid at source which suggests that completion of the returns would be a straight forward task and would not consume a great deal of time. Thus the Tribunal considers the appellant was given ample notice to file the returns.




April 14, 2017 in Tax Compliance | Permalink | Comments (0)

Thursday, April 6, 2017

Technology offers critical solutions to prevent, identify and tackle tax evasion and tax fraud

 Technological solutions offer a clear path for dramatically reducing tax evasion and tax fraud, which cost governments billions in lost revenue annually, according to a new OECD Technology-tools-to-tackle-tax-evasion-and-tax-fraudreport.

Technology Tools to Tackle Tax Evasion and Tax Fraud demonstrates how technology is currently being used by tax administrations in countries worldwide to prevent, identify and tackle tax evasion and tax fraud. These solutions can offer a win-win: better detection of crime, higher revenue recovery, and synergies that can make tax compliance easier for business and tax administrations.

Drawing on the experience of 21 countries, the report provides real and readily-applicable examples of best practices in the effective use of technology in the fight against tax crimes:

  • In Rwanda, the introduction of point of sale technology to address electronic sales suppression resulted in a 20% increase in VAT collected on sales.
  • In the Canadian province of Quebec, similar technology was introduced in the restaurant sector, resulting in the recovery of approximately EUR 822 million in taxes.
  • In Hungary, electronic cash registers increased VAT revenue by 15% in the concerned sectors.

The report will be launched today during the 2017 OECD Global Anti-Corruption and Integrity Forum in Paris. The event brings together stakeholders from government, academia, business, trade and civil society to engage in dialogue on policy, best practices, and recent developments in the fields of integrity and anti-corruption.

Grace Perez-Navarro, Deputy Director of the OECD's Centre for Tax Policy and Administration will present the report during the Forum's session on "Restoring Trust in the Tax System: Ensuring Everyone Pays their Fair Share". This session will be broadcast live from 11:00-12:30 (CEST). Further details are available on the Forum website:

The report was prepared by the OECD's Task Force on Tax Crimes and Other Crimes, which works to further the Oslo Dialogue. Launched by the OECD in 2011, the Oslo Dialogue promotes a whole-of-government approach to tackling financial crimes by fostering inter-agency and international co-operation.

April 6, 2017 in Tax Compliance | Permalink | Comments (0)

Wednesday, March 8, 2017

IRS Has Refunds Totaling $1 Billion for People Who Have Not Filed a 2013 Federal Income Tax Return

The Internal Revenue Service announced today that unclaimed federal income tax refunds totaling more than $1 billion may be waiting for an estimated 1 million taxpayers who did Irs_logonot file a 2013 federal income tax return.

To collect the money, taxpayers must file a 2013 tax return with the IRS no later than this year's tax deadline, Tuesday, April 18.

"We’re trying to connect a million people with their share of 1 billion dollars in unclaimed refunds for the 2013 tax year,” said IRS Commissioner John Koskinen. “People across the nation haven’t filed tax returns to claim these refunds, and their window of opportunity is closing soon. Students and many others may not realize they’re due a tax refund. Remember, there’s no penalty for filing a late return if you’re due a refund.”

The IRS estimates the midpoint for potential refunds for 2013 to be $763; half of the refunds are more than $763 and half are less.

In cases where a tax return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If they do not file a return within three years, the money becomes the property of the U.S. Treasury. For 2013 tax returns, the window closes April 18, 2017. The law requires taxpayers to properly address mail and postmark the tax return by that date.

The IRS reminds taxpayers seeking a 2013 refund that their checks may be held if they have not filed tax returns for 2014 and 2015. In addition, the refund will be applied to any amounts still owed to the IRS, or a state tax agency, and may be used to offset unpaid child support or past due federal debts, such as student loans.

By failing to file a tax return, people stand to lose more than just their refund of taxes withheld or paid during 2013. Many low-and-moderate income workers may have been eligible for the Earned Income Tax Credit (EITC). For 2013, the credit was worth as much as $6,044. The EITC helps individuals and families whose incomes are below certain thresholds. The thresholds for 2013 were:

  • $46,227 ($51,567 if married filing jointly) for those with three or more qualifying children;
  • $43,038 ($48,378 if married filing jointly) for people with two qualifying children;
  • $37,870 ($43,210 if married filing jointly) for those with one qualifying child, and;
  • $14,340 ($19,680 if married filing jointly) for people without qualifying children.

Current and prior year tax forms (such as the Tax Year 2013 Form 1040, 1040A and 1040EZ) and instructions are available on the Forms and Publications page or by calling toll-free: 800- TAX-FORM (800-829-3676). Taxpayers who are missing Forms W-2, 1098, 1099 or 5498 for the years 2013, 2014 or 2015 should request copies from their employer, bank or other payer.

Taxpayers who are unable to get missing forms from their employer or other payer should go to and use the “Get Transcript Online” tool to obtain a Wage and Income transcript.  Taxpayers can also file Form 4506-T to request a transcript of their 2013 income. A Wage and Income transcript shows data from information returns we receive such as Forms W-2, 1099, 1098 and Form 5498, IRA Contribution Information. Taxpayers can use the information on the transcript to file their tax return.

State-by-state estimates of individuals who may be due 2013 tax refunds: 

State or District


Number of








































District of Columbia




















































































New Hampshire




New Jersey




New Mexico




New York




North Carolina




North Dakota




















Rhode Island




South Carolina




South Dakota




























West Virginia
















 * Excluding the Earned Income Tax Credit and other credits. 

March 8, 2017 in Tax Compliance | Permalink | Comments (0)

Sunday, March 5, 2017

Government of Canada Efforts to Crack Down on Tax Cheats

Canadians work hard for their money and the majority pay their taxes, but some wealthy individuals participate in complex tax schemes to evade paying their fair share. The Government of Canada is working hard to crack down on offshore tax evasion and aggressive tax avoidance in order to ensure a tax system that is more responsive and fair for all Canadians.

The Honourable Diane Lebouthillier, Minister of National Revenue, this week tabled the Government of Canada’s response to the House of Commons Standing Committee on Government_of_Canada_signature.svgFinance’s report entitled: The Canada Revenue Agency, Tax Avoidance and Tax Evasion: Recommended Actions. In doing so, Minister Lebouthilier accepted all the recommendations in the report, and reiterated the Government’s commitment to combat tax cheating at home and abroad and to keep Canadians apprised of these efforts.

With the Government of Canada’s investment of $444 million in the Canada Revenue Agency (CRA), the Agency is delivering concrete results.The Agency has already started the work to reassure hard working Canadians that wealthy taxpayers can’t buy their way out of paying their fair share:

  • The CRA is on track to recover over $13 billion this fiscal year alone from audit efforts.
  • The CRA has increased the number of teams focused on large multinational corporations and increased the number of auditors assigned to detect offshore non-compliance.
  • The CRA has set up a team to focus exclusively on promoters of offensive tax schemes.
  • Audits of the highest risk taxpayers for four offshore jurisdictions are underway. The first two jurisdictions targeted were the Isle of Man and Guernsey. Two other jurisdictions of concern cannot be named at the moment, in order to avoid compromising these audits. So far, a total of 41,000 international financial transactions, equaling over $12 billion, have been analyzed.

This announcement reinforces the Government of Canada’s commitment to continue to build its capacity to crack down on tax evasion and aggressive tax avoidance. The Government has the tools to correct non-compliant behaviors as well as when appropriate, impose serious penalties; and, communicate transparently its activities and results to Canadians.



"The Government of Canada is taking action to crack down on tax cheats. When some choose not to pay their share, it places an unfair burden on the tax system. We are sending another strong signal to tax cheats: that this behaviour will not be tolerated and they will face the full force of the law. Our Government will continue to update Canadians on these important actions to ensure a tax system that is responsive, fair and meets the needs of all Canadians." 

-The Honourable Diane Lebouthillier, Minister of National Revenue

Quick Facts

  • In April 2016, the Offshore Compliance Advisory Committee (OCAC) – an independent committee composed of experts with significant legal and tax administration experience – was created to advise the Minister and the CRA on strategies to combat offshore tax evasion and avoidance. On December 5, 2016, the Minister of National Revenue received the OCAC’s report on the Voluntary Disclosures Program (VDP), which contains recommendations to enhance the VDP and improve it for the benefit of Canadians. The insight provided by the OCAC will help inform the CRA’s next steps to ensure that the VDP is delivered in a fair and effective manner. The OCAC’s report is available on the CRA website.‎
  • In June 2016, the CRA published a first conceptual study on the tax gap. The CRA will build on this report and has committed to publishing a series of additional papers on other aspects of the tax gap over the next two to three years.
  • The Agency has been tracking international electronic funds transfers (EFT) of over $10,000. Based on the information collected, the Agency is currently reviewing over 41,000 transactions, worth over $12 billion, in four jurisdictions of concern. Four additional jurisdictions will now be reviewed every year and every EFT of over $10,000 will be analyzed to identify high risk taxpayers.
  • Between April 1, 2011 and March 31, 2016, the CRA convicted 42 taxpayers with offshore links of tax evasion, involving $34 million in federal taxes evaded, court fines of $12 million, and 734 months of jail time.
  • Overall, the CRA is currently conducting audits of over 820 taxpayers and criminally investigating 20 cases of tax evasion related to offshore accounts.

Associated Links

March 5, 2017 in GATCA, Tax Compliance | Permalink | Comments (0)

Thursday, March 2, 2017

A Brief Definition of Insurance (Guest Post by F. Hale Stewart, JD. LL.M.)

Once again, the IRS has placed “certain” captive insurance structures on their Dirty Dozen list.  This latest inclusion argues that certain structures “… lack many of the attributes of Hale stewartgenuine insurance.  It therefore seems appropriate to briefly explain the common law definition of insurance.  What follows is a brief summation of the primary components of insurance as developed over approximately 150 years of common law.  For a more detailed treatment, please contact F. Hale Stewart at 832.330.4101 or 

I.) The Legal Definition of Insurance

Essentially, insurance is a contract by which one party (the insurer), for a consideration that usually is paid in money, either in a lump sum or at different times during the continuance of the risk, promises to make a certain payment, usually of money, upon the destruction or injury of “something” in which the other party (the insured) has an interest.[1]

In addition to all contractual elements that must be present, a valid insurance contract must also contain an insurable interest,[2] a definable risk,[3] risk shifting and risk distribution.[4]  While the basic elements of a contract are beyond the scope of this article, the four additional elements required for a valid insurance contract will be explained in the order previously presented.

a.) Insurable Interest

     The historical roots of this policy date back to England when maritime insurance was sold to an insured whether or not he had a personal or financial interest in the ship or cargo. This sales practice “caused many pernicious practices, whereby great numbers of ships with their cargoes, [were] either … fraudulently lost or destroyed.”[5]  The second root of the insurable interest doctrine is judicial policy to prevent using insurance for gambling or wagering.[6]  During the 1800s, people purchased life insurance on famous elderly persons as a way to speculate on the time of their death.[7]  This practice displaces the primary purpose of insurance -- to protect the purchaser against unforeseen losses that directly impact his personal or financial interests.[8]  The third root of the insurable interest doctrine is the prevention of waste[9] by preventing non-essential insurance policies (such as those previously mentioned) from being written.

     A person has an insurable interest in property “when he or she will derive a pecuniary benefit or advantage from its preservation or will suffer a pecuniary loss or damage from its destruction, termination or injury by the happening of the event insured against.”[10]  The interest can exist in law or equity[11] and can be found in a legal interest that is slight,[12] contingent or beneficial.[13]  In fact, outright ownership or title of ownership is not relevant to the inquiry.[14]  Obviously, courts construe the interest very liberally.[15]  The amount of insurance purchased cannot be disproportionate to the insurable interest or the court will rule the insurance policy is a wagering contract and therefore void against public policy.[16]

b.) Risk of Loss

     The primary purpose of an insurance contract is to transfer risk, which is an unforeseen and uncertain event that is a “disadvantage to the party insured.”[17]  The insured can’t prevent the risk from occurring;[18] it must be accidental[19]  or “fortuitous,” also defined as

‘…an event which so far as the parties to the contract are aware, is dependent on chance.  It must be beyond the power of any human being to bring the event to pass; it may be within the control of third persons; it may even be a past event, such as the loss of a vessel, provided that the fact is unknown to the parties.’[20]

Fortuitous should not be confused with natural degradation or depreciation – which is foreseeable but whose timing is predictable.  In contrast, a fortuitous event is unforeseen and its timing is unknown, thereby impacting the insured when he is less prepared to mitigate the damages.[21]  The unknown or unforeseen element of the fortuity definition is best explained by the three primary fortuity-related defenses insurers offer to challenge an insured’s claim, the first of which is the “known loss” defense, where an insurer will argue the loss had “already occurred or [the insured should have known] the loss already occurred at the time the policy was written.”[22]  The second fortuity related loss defense is the “known risk” defense, where the insured knew the probability of loss was so high as to warrant some type of advance preparation or attempt to avoid the event on the part of the insured.[23]  “Loss in progress” is the third defense, which the insurer will argue when the loss was preceding at the time the insured purchased the insurance contract.[24]  The one common element to all of these defenses is actual or legally impugned knowledge on the part of the insured of the risk actually occurring or having a statistically significant possibility of occurring when he purchases the policy.

c.) Risk Shifting and Risk Distribution

     The concept of risk shifting and risk distribution was originally advanced in the case Helvering v. LeGierse[25] where an 80-year old woman purchased an annuity and life insurance contract from the Connecticut General Life Insurance Company.[26]  The woman paid $4,179.00 for the annuity – which paid $589.80 per year for woman’s life -- and $22,946 for a $25,000 life insurance policy making her total consideration $27,125.[27]  The woman did not have to take a physical for the life insurance policy nor answer any typical questions associated with similar transactions.[28]  The difference between the total consideration paid and the life insurance face value was $2,125.00, which means the insurance company received 3.6 years of annuity payments as consideration for the annuity contract.  Given the woman’s advanced age, the fact no physical was required, and the high premium amount, it seems likely the parties were well aware the woman would soon die, which she did a month after purchasing the contracts.[29]  The daughter did not include the life insurance receipts in her gross income, while the Commissioner argued the receipts were income.[30]

     The court noted that insurance involves “risk shifting and risk distribution;” that insurance shifts the risk of loss from those who would be harmed and distributes the loss of premature death among other, similar risks to limit the losses impact.”[31]  Next, the court stated the transactions should be analyzed together, as the insurance company would not sell one without the other.[32]  Finally, the court noted the transaction was not insurance, because

The total consideration was prepaid and exceeded the face value of the insurance policy.  The excess financed loading and other incidental charges.  Any risk that prepayment would earn less than the amount paid to respondent as an annuity was an investment risk similar to the risk assumed by a bank; it was not an insurance risk.[33]

The Helvering decision does not offer more in the way of definition or guidance as to the specifics of risk shifting or risk distribution.  Thankfully, these terms have a rich history.  Perhaps the best definition of risk shifting is found in a Private Letter Ruling:

Risk shifting occurs when a person facing the possibility of economic loss transfers some or all of the financial consequences of the potential loss to the insurer….If the insured has shifted its risk to the insurer, then a loss by the insured does not affect the insured because the loss is offset by the insurance payment.[34]

In other words, when an unforeseen risk occurs to the insured, he is made whole by the payment from the insurer.  Risk shifting is seen from the insured’s perspective, whereas risk distribution is seen from the insurer’s perspective.

      Risk distribution utilizes the law of large numbers, which is best explained with an example.  Suppose an insurance company only insures single, male drivers aged 30-40.  Assume further that 5% of the entire population of these drivers has an accident every year.  The larger the population of male drivers aged 30-40 that the insurer can insure, the closer the insurers loss experience will come to that of the entire population of these drivers.  Or put another way, “[t]he basic idea of the law of large numbers is that we can be more certain about the future experience of large groups in the aggregate than we can be about the future experience of any particular individuals in that group.”[35]

Distributing risk allows the insurer to reduce the possibility that a single costly claim will exceed the amount taken in as a premium and set aside for the payment of such a claim. Insuring many independent risks in return for numerous premiums serves to distribute risk. By assuming numerous relatively small, independent risks that occur randomly over time, the insurer smoothes out losses to match more closely its receipt of premiums. [citation omitted] Risk distribution necessarily entails a pooling of premiums, so a potential insured is not in significant part paying for its own risks. [citation omitted].[36]


[1] 1 Couch on Insurance Section 1:6

[2] 1A Couch on Insurance Section 17:1

[3]  Id

[4]  Helvering v. LeGierse,  312 U.S. 531, 540 (1941)

[5] Robert H. Jerry II, New Appleman on Insurance Law Library Edition, © 2009 Matthew Bender and Co. Section 1.05

[6] 44 Am. Jur. 2d Insurance Section 934

[7] Appleman, Section 1.05

[8] Id

[9] Id

[10] 44 C.J.S. Insurance Section 318

[11] Id

[12] Id

[13] 44 Am. Jur. 2d Insurance Section 932

[14] Id

[15] 44 C.J.S. Insurance Section 319

[16] 3 Couch on Ins. Section 41:2

[17] 1A Couch on Insurance Section 17.7

[18] Id

[19] Appleman, Section 1.05[2][a]

[20] Appleman, section 1.05[2][b]

[21] Id

[22] Id

[23] Id

[24] Id

[25] Helvering v. LeGierse, 312 U.S. 531 (1941)

[26] Id at 532

[27] Id

[28] Id

[29] Id

[30] Id

[31] Id at 541

[32] Id

[33] Id at 542

[34] PLR 200518010, January 21, 2005

[35] Tom Baker , Insurance Law and Policy, © 2008 Aspen Publishers, page 3

[36] PLR 200518010, January 21, 2005

March 2, 2017 in Tax Compliance | Permalink | Comments (0)

Thursday, February 23, 2017

Spanish Royal Family Member Sentenced to Prison for Tax Evasion and Theft of Public Funds

El Pais story here

NBC News story here: "The king of Spain's brother-in-law was found guilty of fraud and tax evasion and sentenced to more than six years in prison on Friday. ..."

February 23, 2017 in Tax Compliance | Permalink | Comments (0)

Wednesday, February 22, 2017

European Commission Finds Spain Penalties for Non Reporting of Foreign-Held Assets are Discriminatory and Not Proportionate

The European Commission sent a reasoned opinion to Spain today requesting to change its rules on assets held in other EU or the European Economic Area (EEA) Member States EU Council("Modelo 720").

While the Commission takes the view that Spain has the right to require taxpayers to provide its authorities with information on certain assets held abroad, the fines charged for failure to comply are disproportionate. As fines are much higher than penalties applied in a purely national situation, the rules may deter businesses and private individuals from investing or moving across borders in the single market.  Such provisions are consequently discriminatory and in conflict with the fundamental freedoms in the EU. In the absence of a satisfactory response within two months, the Commission may refer the Spanish authorities to the Court of Justice of the EU.

February 22, 2017 in GATCA, Tax Compliance | Permalink | Comments (0)

Saturday, February 18, 2017

IRS Summarizes "Dirty Dozen" List of Tax Scams for 2017

Here is a recap of this year's "Dirty Dozen" scams:

Phishing: Taxpayers need to be on guard against fake emails or websites looking to steal personal information. The IRS will never initiate contact with taxpayers via email about a bill Irs_logo or refund. Don’t click on one claiming to be from the IRS. Be wary of emails and websites that may be nothing more than scams to steal personal information. (IR-2017-15)

Phone Scams: Phone calls from criminals impersonating IRS agents remain an ongoing threat to taxpayers. The IRS has seen a surge of these phone scams in recent years as con artists threaten taxpayers with police arrest, deportation and license revocation, among other things. (IR-2017-19)

Identity Theft: Taxpayers need to watch out for identity theft especially around tax time. The IRS continues to aggressively pursue the criminals that file fraudulent returns using someone else’s Social Security number. Though the agency is making progress on this front, taxpayers still need to be extremely cautious and do everything they can to avoid being victimized. (IR-2017-22)

Return Preparer Fraud: Be on the lookout for unscrupulous return preparers. The vast majority of tax professionals provide honest high-quality service. There are some dishonest preparers who set up shop each filing season to perpetrate refund fraud, identity theft and other scams that hurt taxpayers. (IR-2017-23)

Fake Charities: Be on guard against groups masquerading as charitable organizations to attract donations from unsuspecting contributors. Be wary of charities with names similar to familiar or nationally known organizations. Contributors should take a few extra minutes to ensure their hard-earned money goes to legitimate and currently eligible charities. has the tools taxpayers need to check out the status of charitable organizations. (IR-2017-25)

Inflated Refund Claims: Taxpayers should be on the lookout for anyone promising inflated refunds. Be wary of anyone who asks taxpayers to sign a blank return, promises a big refund before looking at their records or charges fees based on a percentage of the refund. Fraudsters use flyers, advertisements, phony storefronts and word of mouth via community groups where trust is high to find victims. (IR-2017-26)

Excessive Claims for Business Credits: Avoid improperly claiming the fuel tax credit, a tax benefit generally not available to most taxpayers. The credit is usually limited to off-highway business use, including use in farming. Taxpayers should also avoid misuse of the research credit. Improper claims often involve failures to participate in or substantiate qualified research activities and/or satisfy the requirements related to qualified research expenses. (IR-2017-27)

Falsely Padding Deductions on Returns: Taxpayers should avoid the temptation to falsely inflate deductions or expenses on their returns to pay less than what they owe or potentially receive larger refunds. Think twice before overstating deductions such as charitable contributions and business expenses or improperly claiming credits such as the Earned Income Tax Credit or Child Tax Credit. (IR-2017-28)

Falsifying Income to Claim Credits: Don’t invent income to erroneously qualify for tax credits, such as the Earned Income Tax Credit. Taxpayers are sometimes talked into doing this by con artists. Taxpayers should file the most accurate return possible because they are legally responsible for what is on their return. This scam can lead to taxpayers facing large bills to pay back taxes, interest and penalties. In some cases, they may even face criminal prosecution. (IR-2017-29)

Abusive Tax Shelters: Don’t use abusive tax structures to avoid paying taxes. The IRS is committed to stopping complex tax avoidance schemes and the people who create and sell them. The vast majority of taxpayers pay their fair share, and everyone should be on the lookout for people peddling tax shelters that sound too good to be true. When in doubt, taxpayers should seek an independent opinion regarding complex products they are offered. (IR-2017-31)

Frivolous Tax Arguments: Don’t use frivolous tax arguments to avoid paying tax. Promoters of frivolous schemes encourage taxpayers to make unreasonable and outlandish claims even though they have been repeatedly thrown out of court. While taxpayers have the right to contest their tax liabilities in court, no one has the right to disobey the law or disregard their responsibility to pay taxes. The penalty for filing a frivolous tax return is $5,000. (IR-2017-33)

Offshore Tax Avoidance: The recent string of successful enforcement actions against offshore tax cheats and the financial organizations that help them shows that it’s a bad bet to hide money and income offshore. Taxpayers are best served by coming in voluntarily and getting caught up on their tax-filing responsibilities. The IRS offers the Offshore Voluntary Disclosure Program  to enable people to catch up on their filing and tax obligations. (IR-2017-35)

February 18, 2017 in Tax Compliance | Permalink | Comments (0)

Tuesday, February 7, 2017

IRS LB&I Launches 13 Compliance & Audit Campaigns

IRS Announces Initial Rollout of Campaigns

The IRS Large Business and International division has announced  the identification and selection of 13 campaigns. This is a significant milestone for LB&I in the campaign effort. LB&I Irs_logois moving toward issue-based examinations and a compliance campaign process in which the organization decides which compliance issues that present risk require a response in the form of one or multiple treatment streams to achieve compliance objectives. This approach makes use of IRS knowledge and deploys the right resources to address those issues

The campaigns are the culmination of an extensive effort to redefine large business compliance work and build a supportive infrastructure inside LB&I. Campaign development requires strategic planning and deployment of resources, training and tools, metrics and feedback. LB&I is investing the time and resources necessary to build well-run and well-planned compliance campaigns.

These campaigns were identified through LB&I extensive data analysis, suggestions from IRS compliance employees and feedback from the tax community. LB&I's goal is to improve return selection, identify issues representing a risk of non-compliance, and make the greatest use of limited resources.

As part of this effort, LB&I leaders will continue discussion with the tax community to assist with work on these areas to best meet the needs of the taxpayers as well as tax administration. These discussions will also help in determining additional areas for future campaigns.  

The 13 campaigns selected for this initial rollout are:

  • IRC 48C Energy Credit Campaign

The Practice Area is Enterprise Activities

Lead Executive: Kathy Robbins

This campaign ensures that only those taxpayers whose advanced energy projects were approved by the Department of Energy, and who have been allocated a credit by the IRS, are claiming the credit. These credits must be pre-approved through extensive application to the DOE. The treatment stream for this campaign will be soft letters and issue-focused examinations.

  • OVDP Declines-Withdrawals Campaign

The Practice Area is Withholding & International Individual Compliance

Lead Executive: Pamela Drenthe

The Offshore Voluntary Disclosure Program (OVDP) allows U.S. taxpayers to voluntarily resolve past non-compliance related to unreported offshore income and failure to file foreign information returns. This campaign addresses OVDP applicants who applied for pre-clearance into the program but were either denied access to OVDP or withdrew from the program of their own accord. Taxpayers, who have yet to resolve their non-compliance and who meet the eligibility criteria, are encouraged to consider entering one of the offshore programs currently available. The IRS will address continued noncompliance through a variety of treatment streams including examination.

  • Domestic Production Activities Deduction, Multi-Channel Video Program Distributors (MVPD’s) and TV Broadcasters

The Practice Area is Enterprise Activities

Lead Executive: Kathy Robbins

Multi-channel Video Programing Distributors (MVPDs) and TV Broadcasters often claim that “groups” of channels or programs are a qualified film eligible for the IRC Section 199 deduction. Taxpayers are asserting that they are the producers of a qualified film when distributing channels and subscriptions packages that often include third-party produced content. Additionally, MVPD taxpayers maintain that they provide online access to computer software for the customers’ direct use (incident to taxpayers’ transmission activities, including customers’ use of the set-top boxes). LB&I has developed a strategy to identify taxpayers impacted by these issues and will develop training to aid revenue agents in examining them. The treatment streams for this campaign include the development of an externally published practice unit, potential published guidance, and issue based exams, when warranted.

  • Micro-Captive Insurance Campaign

The Practice Area is Enterprise Activities

Lead Executive: Gloria Sullivan

This campaign addresses transactions described in Transactions of Interest Notice 2016-66, in which a taxpayer attempts to reduce aggregate taxable income using contracts treated as insurance contracts and a related company that the parties treat as a captive insurance company. Each entity that the parties treat as an insured entity under the contracts claims deductions for insurance premiums. The manner in which the contracts are interpreted, administered, and applied is inconsistent with arm’s length transactions and sound business practices. LB&I has developed a training strategy for this campaign. The treatment stream for this campaign will be issue-based examinations.

  • Related Party Transactions Campaign

The Practice Area is Enterprise Activities

Lead Executive: Peter Puzakulics

This campaign focuses on transactions between commonly controlled entities that provide taxpayers a means to transfer funds from the corporation to related pass through entities or shareholders. LB&I is allocating resources to this issue to determine the level of compliance in related party transactions of taxpayers in the mid-market segment. The treatment stream for this campaign is issue-based examinations.

  • Deferred Variable Annuity Reserves & Life Insurance Reserves IIR Campaign

The Practice Area is Enterprise Activities

Lead Executive: Kathy Robbins

The IRS and Chief Counsel have agreed to accept the Deferred Variable Annuity Reserves and Life Insurance Reserves issues into the IIR program (pursuant to Rev. Proc. 2016-19) to develop guidance to address uncertainties on issues important to the Life Insurance Industry. The issues include amounts to be taken into account in determining tax reserves for both deferred variable annuities with Guaranteed Minimum Benefits, and Life Insurance contracts. The campaign's objective is to collaborate with industry stakeholders, Chief Counsel and Treasury to develop published guidance that provides certainty to taxpayers regarding these related issues.

  • Basket Transactions Campaign

The Practice Area is Enterprise Activities

Lead Executive: Gloria Sullivan

This campaign addresses structured financial transactions described in Notices 2015-73 and 74, in which a taxpayer attempts to defer and treat ordinary income and short-term capital gain as long-term capital gain. The taxpayer treats the option or other derivative as open until a barrier event occurs, and, therefore, does not recognize or report current period gains. The gains are deferred until the contract terminates, at which time the overall net gain is reported as a Long Term Capital Gain. LB&I has developed a training strategy for this campaign. The treatment streams for this campaign will be issue-based examinations, soft letters to Material Advisors and practitioner outreach.

  • Land Developers - Completed Contract Method (CCM) Campaign

The Practice Area is Enterprise Activities

Lead Executive: Peter Puzakulics

Large land developers that construct in residential communities may be improperly using the Completed Contract Method (CCM) of accounting. A developer, whose average annual gross receipts exceed $10 million, may only use the CCM under a home construction contract. In some cases, developers are improperly deferring all gain until the entire development is completed. LB&I will provide training for revenue agents assigned to work this issue. The treatment stream includes development of a practice unit, issuance of soft letters, and follow-up with issue based examinations when warranted.

  • TEFRA Linkage Plan Strategy Campaign

The Practice Area is Pass-Through Entities

Lead Executive: Cliff Scherwinski

As partnerships have become larger and more complex, LB&I has regularly revised processes to assess tax on the terminal investors. Recent legal advice provides an opportunity to make significant changes to how we approach this process. This campaign focuses on developing new procedures and technology to work collaboratively with the revenue agent conducting the TEFRA partnership examination to identify, link and assess tax to the terminal investors that pose the most significant compliance risk.

  • S Corporation Losses Claimed in Excess of Basis Campaign

The Practice Area is Pass-Through Entities

Lead Executive: Holly Paz

S corporation shareholders report income, losses and other items passed through from their corporation. The law limits losses and deductions to their basis in the corporation. LB&I has found that shareholders claim losses and deductions to which they are not entitled because they do not have sufficient stock or debt basis to absorb these items. LB&I has developed technical content for this campaign that will aid revenue agents as they examine the issue. The treatment streams for this campaign will be issue-based examinations, soft letters encouraging voluntary self-correction, conducting stakeholder outreach, and creating a new form for shareholders to assist in properly computing their basis.

  • Repatriation Campaign

The Practice Area is Cross Border Activities

Lead Executive: John Hinding

LB&I is aware of different repatriation structures being used for purposes of tax free repatriation of funds into the U.S. in the mid-market population. It has also been determined that many of the taxpayers do not properly report repatriations as taxable events on their filed returns. The goal of this campaign is to simultaneously improve issue selection filters while conducting examinations on identified, high risk repatriation issues and thereby increase taxpayer compliance.

  • Form 1120-F Non-Filer Campaign

The Practice Area is Cross Border Activities

Lead Executive: John Hinding

Foreign companies doing business in the U.S. are often required to file Form 1120-F. LB&I has data suggesting that many of these companies are not meeting their filing obligations. In this campaign, LB&I will use various external data sources to identify these foreign companies and encourage them to file their required returns. The treatment stream for this campaign will involve soft letter outreach. If the companies do not take appropriate action, LB&I will conduct examinations to determine the correct tax liability. The goal is to increase voluntary compliance by foreign corporations with a U.S. business nexus.

  • Inbound Distributor Campaign

The Practice Area is Treaty and Transfer Pricing Operations

Lead Executive: Sharon Porter

U.S. distributors of goods sourced from foreign-related parties have incurred losses or small profits on U.S. returns, which are not commensurate with the functions performed and risks assumed. In many cases, the U.S. taxpayer would be entitled to higher returns in arms-length transactions. LB&I has developed a comprehensive training strategy for this campaign that will aid revenue agents as they examine this IRC Section 482 issue. The treatment stream for this campaign will be issue-based examinations.

These campaigns represent the first wave of LB&I's issue-based compliance work. More campaigns will continue to be identified, approved and launched in the coming months.

February 7, 2017 in Tax Compliance | Permalink | Comments (0)

Saturday, January 21, 2017

Congressional Staffer Sentenced to Prison for Failure to File Income Tax Returns

A congressional staffer was sentenced to prison today for willfully failing to file an individual income tax return, announced Principal Deputy Assistant Attorney General Caroline D. Ciraolo, head of the Justice Department’s Tax Division, and U.S. Attorney Dana J. Boente for the Eastern District of Virginia.

According to documents filed with the court, Issac Lanier Avant, a resident of Arlington, Virginia, has been employed by the U.S. House of Representatives as a Chief of Staff since Irs_logo2002. In December 2006, Avant assumed the additional role of Democratic Staff Director for the House Committee on Homeland Security. Despite earning more than $165,000, Avant failed to timely file his 2009 through 2013 individual income tax returns, causing a tax loss of $153,522. Avant had no federal income withheld during those years because in May 2005, he caused a form to be filed with his employer that falsely claimed he was exempt from federal income taxes. Avant did not have any federal tax withheld from his paycheck until the Internal Revenue Service (IRS) mandated that his employer begin withholding in January 2013. Avant did not file tax returns until after he was interviewed by federal agents.

The court imposed a prison term of approximately 4 months, consisting of 30 days incarceration, followed by incarceration every weekend for 12 months. Avant was also ordered to serve a one-year term of supervised release and to pay restitution in the amount of $149,962 to the IRS.

Principal Deputy Assistant Attorney General Ciraolo and U.S. Attorney Boente thanked special agents of IRS-Criminal Investigation and the FBI, who conducted the investigation, and Assistant U.S. Attorney Jack Hanly and Assistant Chief Todd Ellinwood of the Tax Division, who are prosecuting the case.

January 21, 2017 in Tax Compliance | Permalink | Comments (3)

Tuesday, December 13, 2016

IRS Publishes 2017 Standard Mileage Rates for Business, Medical and Moving

The Internal Revenue Service today issued the 2017 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2017, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 53.5 cents per mile for business miles driven, down from 54 cents for 2016
  • 17 cents per mile driven for medical or moving purposes, down from 19 cents for 2016
  • 14 cents per mile driven in service of charitable organizations

The business mileage rate decreased half a cent per mile and the medical and moving expense rates each dropped 2 cents per mile from 2016. The charitable rate is set by statute and Irs_logoremains unchanged.   The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements are described in Rev. Proc. 2010-51. Notice 2016-79, posted today on, contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

December 13, 2016 in Tax Compliance | Permalink | Comments (0)